How long must development last to change decision

Assignment Help Financial Management

Reference no: EM131583334

FastTrack Bikes, Inc. is thinking of developing a new composite road bike. Development will take six years and the cost is $ 208,800 per year. Once in production, the bike is expected to make $ 296,235 per year for 10 years. The cash inflows begin at the end of year 7.

For parts a-c, assume the cost of capital is 10.1 %

a. Calculate the NPV of this investment opportunity. Should the company make the investment?

b. Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged.

c. How long must development last to change the decision?

For parts d-f, assume the cost of capital is 13.5 %

d. Calculate the NPV of this investment opportunity. Should the company make the investment?

e. How much must this cost of capital estimate deviate to change the decision?

f. How long must development last to change the decision?

Reference no: EM131583334

Questions Cloud

Capita spending on health care : As of 1995, per capita spending on health care in the United States was about $3,600.

Make investors indifferent between them and treasury bonds : What would the interest rate on USAirways bonds need to be in order to make investors indifferent between them and Treasury bonds?

What is the payback period of this investment : What is the payback period of this investment? If you require a payback period of two years, will you make the movie?

What is dharma supply net income : What is Dharma Supply's net income? What would Dharma's net income be if it didn't have any debt (and consequently no interest expense)?

How long must development last to change decision : Calculate the NPV of this investment opportunity. Should the company make the investment? How long must development last to change the decision?

Statements is general implication of globalization : A stock dividend will. Which of the following statements is a general implication of globalization?

Statements is a general implication of globalization : Which of the following statements is a general implication of globalization?

Calculate the times interest earned ratio : Analyzing coverage? ratios-Calculate the times interest earned ratio for each of the years for which you have data.

If the company now splits its stock : If the company now splits its stock 3-for-1,

User Account

All Pages